Mexico proposes opening up its oil sector

Mexican President Enrique Pena Nieto on Monday proposed sweeping reforms of the country’s oil sector that would allow foreign energy firms back into the industry 75 years after being thrown out.

Pena Nieto proposed a constitutional reform that would allow state oil monopoly Pemex to partner with private energy companies in oil and gas exploration, and production.

The joint deals aim at tapping foreign oil company capital and technology to revive oil and gas production, which has sagged under Pemex in recent years.

However, the giant Pemex — Petroleos Mexicanos, which has dominated the industry since the 1938 nationalization — would maintain the state’s ownership of all hydrocarbon resources.

Pemex itself, a key source of government revenues and a crucial driver of the economy, would remain in state hands.

The reform would modify Article 27 of Mexico’s constitution to allow private companies to form joint ventures with Pemex in energy exploration and production, according to a summary of the proposal.

Article 28 would be changed to allow Pemex to join with private firms in refining, petrochemicals and storage.

Still, Pena Nieto stressed that “oil and other hydrocarbons will continue to be the exclusive assets of the nation,” and Pemex will remain “100 percent owned by the nation.”

The reforms aim at restructuring the tax regime that has hurt Pemex’s competitiveness. The company was established in 1938 when Mexico took over foreign oil company operations, and is responsible today for about a-third of state income.

Pena Nieto said the government will take a long-term position on getting income from the oil sector rather than the short-term approach of collecting taxes.

If the reforms are approved, he predicted that oil production could grow from 2.5 million barrels a day last year to 3 million in 2018 and 3.5 million by 2025.

The president could face significant political opposition to the changes. The three leading political parties have agreed that Pemex needs to be reformed to encourage more investment and production in the sector.

However, leftist politicians oppose any constitutional amendments and have planned protests over the coming weeks against what they consider the privatization of publicly owned resources.

Party of the Democratic Revolution President Jesus Zambrano condemned the reforms as “having the signs of privatizing and sharing oil revenues.”

“If they want to keep full ownership of the oil, then why do they want to change the constitution?” he asked.

Mexico’s government depends heavily on oil and industry analysts put Mexico’s crude reserves at about 13.81 billion barrels, though much of it is in deep, complex deposits that are expensive and complicated to tap.

The country meanwhile pays dearly for imported natural gas, even though it sits on likely large deposits of shale gas.

Pemex itself says the industry needs about US$30 billion a year in fresh investment to get production back to 3 million barrels a day.